Unraveling the Truth: Debunking the Fidelity "Dead Accounts" Study and Exploring Investment Strategies

Unraveling the Truth: Debunking the Fidelity "Dead Accounts" Study and Exploring Investment Strategies

Introduction:

In the world of finance and investing, there are often stories and studies that captivate our attention and challenge conventional wisdom. One such tale is the infamous Fidelity "dead accounts" study, which purportedly revealed that accounts belonging to deceased individuals outperformed other investment strategies. However, upon closer examination, it becomes clear that this study is nothing more than a myth. In this article, we will delve into the origins of this fictitious study, question its validity, and explore alternative investment strategies that can potentially yield favorable returns.

The Fidelity "Dead Accounts" Study: Fact or Fiction?

The legend goes that Fidelity, one of the world's largest investment firms, conducted an extensive study on the performance of different account types. Surprisingly, the study allegedly found that accounts held by deceased individuals consistently outperformed all other strategies. However, a critical analysis reveals several flaws in this narrative. Firstly, the sheer number of accounts belonging to dead people that Fidelity would need to have is highly improbable. Additionally, if Fidelity had identified such accounts, it would be expected that appropriate authorities would have been notified. Thus, it becomes evident that the Fidelity "dead accounts" study is nothing more than a fabrication.

Questioning Conventional Wisdom: Could the Study Be Right?

While the Fidelity study may be proven to be a work of fiction, it is worth considering whether the conventional wisdom it challenges may have some validity. To explore this further, let us turn to real investment portfolios and their performance over time. Using Morningstar's portfolio tool, we can analyze the returns of two popular portfolios: a simple 60/40 portfolio consisting of the Vanguard 500 and Vanguard Total Bond Market, and a Boglehead 3-fund portfolio with an added allocation to Vanguard Total International Stock.

Exploring Investment Strategies: Real Portfolio Performance

By examining the annual returns and final values of these portfolios, we can gain valuable insights into their performance. It is important to note that these findings are based on historical data and should not be considered as guarantees for future returns. Nonetheless, they provide a foundation for understanding the potential success of different investment strategies.

Incorporating Actionable Advice:

• 1. Diversification is key: Both the 60/40 portfolio and the Boglehead 3-fund portfolio demonstrate the importance of diversifying investments across various asset classes. By spreading risk, investors can potentially mitigate losses and increase the likelihood of favorable returns.

• 2. Regular rebalancing: Rebalancing portfolios at regular intervals, whether monthly, quarterly, semiannually, or annually, can help maintain the desired asset allocation. This practice ensures that gains from outperforming assets are reallocated to underperforming ones, promoting a balanced and disciplined approach to investing.

• 3. Consider international exposure: Adding exposure to international stocks, as demonstrated by the Boglehead 3-fund portfolio, can offer a broader scope for potential returns. International markets often operate independently from domestic markets, providing diversification benefits and potentially enhancing overall portfolio performance.

Conclusion:

While the Fidelity "dead accounts" study may have captured our imagination, it is essential to separate fact from fiction in the world of investing. By critically examining investment strategies and exploring real portfolio performance, we can make informed decisions and strive for favorable returns. Diversification, regular rebalancing, and considering international exposure are actionable steps that investors can take to navigate the complex landscape of finance and potentially achieve their financial goals.